Duking It Out on 'Gainful Employment'

Submitted by Jennifer Epstein on September 13, 2010 - 3:00am

WASHINGTON – After more than a year of wrangling, the last chance for colleges, associations and individuals to weigh in on the U.S. Department of Education’s “gainful employment" rules[1] came to a close last week with the end of the public comment period on the department’s proposed regulations.

Since late July, when the Education Department shared its rationale[2] and draft regulatory language in a Notice of Proposed Rule Making (NPRM) in the Federal Register, about 80,000 comments have flowed in from supporters and opponents of the regulations. The department has proposed to determine whether most for-profit offerings and some nondegree programs at nonprofit colleges were eligible to participate in the Title IV federal financial aid program using measures of the ability of former students to repay their student loans.

The department has insisted that it will publish final regulatory language by Nov. 1[3] so that the language can begin taking effect on July 1, 2011 – leaving the department seven weeks to read all the submissions and factor them into its decision. Department officials would not say whether the rush of comments – many from for-profit college students and employees and orchestrated by the colleges or, in some cases, their parent companies – would change that timeline or lead to reconsiderations of the rules. Nonetheless, it appears that the department will continue as planned, adjusting its proposal based on some of the constructive and clarifying comments it received, but not substantively transforming its reasoning or its metrics.

Inside Higher Ed has examined the comments from hundreds of individuals, as well as major associations and for-profit institutions, to get a sense of what department officials will come across as they read the thousands of submissions.

Tens of thousands of comments came from students, alumni and employees of for-profit colleges who wrote in opposition to the regulations. The Career College Association and several companies, including University of Phoenix parent Apollo Group, Education Management Corporation and Kaplan, Inc., encouraged students and staff to submit comments opposing the regulations. Smaller institutions, like Stevens-Henager College in Utah, San Joaquin Valley College in California, and Miller-Motte College, which has campuses throughout the southeast United States, also coordinated public comment campaigns.

Education Management, which owns the Art Institutes and Argosy University, among other institutions, hired Republican-affiliated strategy firm DCI Group to assist employees[4] with their letter-writing. Bulk submissions of letters from Education Management and Kaplan employees were filed under cover pages signed by Bethany N. Dame, vice president of advocacy for BIPAC, a business advocacy group that coordinates grassroots campaigns. CCA also coordinated bulk submissions of hundreds of comments.

Though plenty of these individual commenters drafted their own comments, many submitted letters that were based on sample text coming from their institutions or from CCA. The message in those letters: the proposed rule would deny students access to postsecondary education and unfairly regulate only one sector of higher education. One of CCA’s form letters asked commenters to describe their institutions and then add, “The Department of Education’s proposed gainful employment rules would take this dream away from thousands of students by denying them the federal financial aid they are entitled to.” Not quite an accurate statement – the regulations would still provide aid to students enrolled in programs in compliance with the gainful employment rules – but nonetheless a compelling way to get students and employees concerned about their personal interests.

Comments flowed in from minority groups in support and opposition to the rule[5]; some of these groups had been lobbied on behalf of the CCA or individual for-profit colleges and warned about the potential denial of access

Supporters of the rules also coordinated mass public submissions. Edie Irons, communications director for the Institute for College Access & Success, said that more than 1,800 comments were submitted via its website and that the organization was aware of more than 27,000 comments “sent in support of strong regulations” and believed the final tally of pro-regulations comments would be even higher.

The entire Florida delegation to the House of Representatives filed concerns about the effect the regulations could have on the state’s workforce development programs. Other state and national elected officials also submitted comments, in both support and opposition to the department’s proposed rules.

Half a dozen prominent senators – five Democrats and one independent – submitted a joint comment, voicing support for the proposal. The regulations, they wrote, would be “a significant tool to ensure students do not just have more options to get their education, but better options,” ones that in their view would leave students with less debt and better training. The department, they added, “should be pushing poor performing schools to do better and limiting subsidies to programs with a documented track record of failing to help students.” The comment was signed by Democrats Tom Harkin, of Iowa, chair of the Senate Health, Education, Labor and Pensions Committee; Richard J. Durbin, of Illinois; Russell D. Feingold, of Wisconsin; Frank R. Lautenberg, of New Jersey; and Al Franken, of Minnesota. Bernard Sanders, of Vermont, an independent who caucuses with the Democrats, also signed the letter.

But the most substantive – and potentially influential – comments came from the usual suspects: the associations and colleges that have kept a close watch on the rules since the beginning of the rule-making process.

For-Profit Opposition

Not surprisingly, for-profit colleges submitted comments voicing clear opposition to the proposed rules and calling for the Education Department to delay, if not entirely reconsider, their promulgation. For-profits expressed concern about access to higher education for low-income, minority and adult students, as well as fears that the ability of U.S. institutions to contribute to President Obama’s 2020 goals for higher education would be impeded by the regulation of its fastest-growing segment.

Though for-profit colleges and the trade group representing 1,400 of them, the Career College Association, did in their comments offer suggestions on how the department could alter the regulatory language it has proposed, the sector’s chief tack in the comments was dissuasion – trying to convince the department that it lacks the legal authority to enact the rules.

The regulations, contended the CCA and several for-profit colleges in their comments, reach beyond the department’s powers and are contrary to Congressional intent in the Higher Education Act, the same law that the department has argued gives it the authority to issue gainful employment regulations.

CCA offered four major legal arguments. First, that in regulating debt levels, the rules would amount to regulating tuition, meaning that the department has reached outside the authority granted to it by Congress. While Congress has in the Higher Education Act addressed issues of student debt and defaults, “it has not granted the department the authority to override – or even augment – the existing requirements by regulation” and, more broadly, the attempt to define gainful employment is “contrary not only to the entire scheme of the HEA but also to the plain language of the statutory provision on which the department relies.”

Second, that by providing institutions only limited data on their students, the rules violate due process. Third, that the proposed rules “are arbitrary and capricious and contrary to law because they impose new consequences based on past decisions by institutions.” And fourth, that the department has chosen to move forward with regulations that “are arbitrary and capricious – and deeply flawed – in numerous additional respects,” suggesting to the CCA that the department has not fulfilled its “obligation to engage in reasoned decision-making.”

Those same arguments about the department’s authority, due process, the fact that past actions would be penalized in the future, and the haste with which the department put forth its rules are repeated in part or whole by several for-profit colleges that made their comments available on their websites or shared them with Inside Higher Ed.

Understanding that the department has thus far fought back against those arguments, the for-profits did offer complaints about specific provisions of the regulations that they would like to see changed in the final regulatory text.

Walden University, which is owned by the privately held Laureate Education Inc., and Capella University, which is publicly traded, collaborated to file similar comments that reflect the fact that both institutions primarily offer graduate programs to working adults. While asking that the department reconsider the rules, the institutions acknowledged that the department may go ahead with them anyway and asked for the department to take a series of steps:

Conduct further study of debt, outcomes and job placement before issuing final regulations.

Use Bureau of Labor Statistics income data -- instead of the actual income averages the department has proposed. Use different percentiles of BLS earnings to determine debt-to-income ratios based on whether a program is at a lower level, like an associate degree, or at the graduate level.

Broaden the definition of students counted to be in repayment of their loans over a longer time period and to also include students who are in good standing with their lenders and have consolidated loans, are in deferment or forbearance, or are on an income-based repayment plan.

Exempt graduate programs, whose students often use loan consolidation or repayment plans and pursue degrees not just for pay raises but to change careers.

Education Management Corporation and Kaplan, Inc., made similar arguments – except for those on graduate programs – in their comments, as did the CCA. Apollo Group, the largest for-profit company, declined to release its comments before their publication on regulations.gov.

Kaplan's submission was atypical, in that it ended with a letter from Andrew S. Rosen[6], the company's CEO, announcing that the company would begin offering the first few weeks of a student's enrollment "risk free," providing students and the federal student aid program refunds for dropouts occurring early in the course of a program. Rosen also talked up the distinctions between "good actors" and "bad actors," and suggested that his company fell into the former camp and should be treated as such, especially with the introduction of this new policy.

Support, With Tweaks

While for-profit colleges and their allies are still pushing for the department to abandon – or at least postpone and soften – the regulations, groups representing nonprofit colleges and consumers submitted comments in support of the proposed rules, even if pushing for changes in the final regulatory language.

The American Council on Education said it supported the rules because they reflected the notion that “[p]ostsecondary education and job training programs should increase the employability and future earnings of students, not leave them worse off.” But in her letter to the department, Molly Corbett Broad, the group’s president, made it clear that her association and the 50 other associations and accreditation agencies that signed onto the letter considered the rules appropriate for programs that prepare students for a specific occupation and not for “those that provide a broader education suited to a wide array of pursuits.”

Avoiding specific reference to for-profit colleges, the comments from ACE stressed that nonprofit colleges are not the department’s primary target for the regulations, but would be covered and burdened by them. Close to 80 percent of the 53,000 programs the department said would be subject to the gainful employment rules are at nonprofit institutions “even though programs at these institutions are generally characterized by low default rates and manageable debt burdens.” In her letter, Broad said ACE and its allies would like to see the department adjust the scope of the rules to omit certificate programs that require as a prerequisite an associate or bachelor’s degree, as well as certificate programs whose credits can be fully counted toward a degree.

ACE also shared concerns about the regulation’s effects on community colleges, where only about 5 percent of students use loan funds available through Title IV of the Higher Education Act for certificate programs, with average debt of $3,600, as well as on certificate programs at other public and private nonprofit institutions that “are an outgrowth of, and benefit from, the larger infrastructure of established degree-granting programs.” To cut down on the number of nonprofit programs regulated by the gainful employment rules, ACE suggested the department exempt institutions where less than 5 percent of the credentials awarded are certificates, as well as programs where no more than 35 percent of students borrow Title IV funds.

The American Association of Community Colleges signed onto ACE’s letter but also submitted its own comments, voicing support for “the NPRM’s overall approach” and the department’s apparent shift to greater regulation of for-profit colleges. The association stressed that it was the for-profits, and not community colleges, that the department wanted to regulate. “Although for-profit colleges are owned by shareholders and corporate executives, they are perhaps more accurately viewed as poorly regulated quasi-federal entities… the largest five for-profit companies derive 77 percent of their revenues from Title IV aid; the average community college receives 6 to 7 percent of its funds via the Title IV.”

Community colleges, AACC wrote, “cannot afford to devote significant and unnecessary new resources” to assuring compliance with the gainful employment rules and suggested a series of measures – including some of those proposed by ACE –to limit if not eliminate the need for them to abide by the rules.

The association also asked that new community college programs not be required to undergo the program review the department outlined in its proposed rules. “As a matter of course, community college workforce education programs are designed to meet local labor market needs” and the proposed review “would add a layer of federal bureaucracy that is unnecessary and redundant and will impede the ability of community colleges to quickly and effectively respond to workforce needs." In August, AACC asked its members to send in their own comments to the department conveying the same arguments.

Anthony P. Carnevale, director of the Center on Education and the Workforce at Georgetown University, submitted comments backing the proposed rules. “We agree that it is necessary to regulate and, where appropriate, sanction those programs that do not provide students with significant earnings returns in the labor market and that potentially harm the taxpayer through a higher rate of default,” but, the comment continued, the proposed regulations “fall short of the system we need" -- one better linking postsecondary education to workforce needs.

The Institute for College Access and Success, founded by Robert Shireman, who was the department’s deputy under secretary throughout most of the rule-making process, voiced support for the proposed rules but asked the department to be tougher in its final regulatory language. The final rule, TICAS said, set a standard that “is simply too low to demonstrate that programs are adequately preparing students for gainful employment,” referring to the proposed repayment rate thresholds, which would keep programs eligible for Title IV so long as they had a weighted average of 35 percent of students paying down even $1 of their principal.

TICAS also asked that the “restricted” status set forth in the proposed regulations be made more punitive and require rapid improvement to retain Title IV eligibility. “Taxpayers should not be forced to subsidized low performance and high profits, and certainly not indefinitely,” the group wrote. TICAS also recommended that the department adjust discretionary income levels for students with children and that the department identify and require “high-risk programs” to warn students of their likely failure of the gainful employment tests beginning in 2011 – a full two years before the rules are scheduled to be fully enacted.

The National Association of Student Financial Aid Administrators, which has members at nonprofit and for-profit institutions, said that it did not question the department’s metrics but worried about the practicalities of carrying out the rules, a burden that would at many institutions likely fall to NASFAA members. In its comments, the association cited “a host of difficulties with the actual implementation of the debt-to-income measures,” including the use of average incomes by program provided to the department by the Social Security Administration, which would be weighed down by former students who chose not to work or to work part-time for reasons that had nothing to do with whether the program they attended prepared them for “gainful employment.” Overall, the association wrote, the debt-to-income ratios were “the measure that we believe has the most inherent questionability with regard to reliable and verifiable (by the institution) data.”

The association said it is also concerned about the damage the rules could do to small programs, or programs with very few borrowers: “based on what we have heard from our members and others, it will be likely that various low cost community college programs with few borrowers and low levels of overall indebtedness would be subject to issuing debt warnings and disclosures.” To ameliorate the potential problems, NASFAA in its comments recommended a “hierarchal approach” that would exempt programs where only a small percentage of students took out loans, or where the media loan amount was low. If an institution’s (or a program’s) three-year cohort default rate met “an acceptable threshold,” it would be exempted from the gainful employment measures. Programs that did not meet those criteria would have to undergo the repayment rate test and potentially face further restrictions, and those that failed the repayment test would have to be examined using the debt-to-income ratios.

NASFAA also asked for a series of changes to the proposed rule language that would clarify time periods, threshold levels and other issues related to calculations.